Gwynne pointed out that the pressure on fees was in part due to clients and supervisors becoming increasingly cost-aware, “as costs have become an important selection criterion”.In his opinion, another explanation for declining costs was that many clients had opted for low-cost alternatives, such as ETFs and factor investment. He estimated that 40% of the reduction could be explained by this phenomenon.The survey suggested that asset managers dealt with the development by accepting a drop in their profits margin, but also cut costs through their back office. This meant that cost-saving came at the expense of investment in IT systems, which the survey said were necessary to remain competitive. In addition, declining income could lead to mergers and takeovers, the two companies said.The researchers said they expected clients would increasingly opt for extremely low-cost investments in combination with higher-cost active investments.“Through investing a large proportion of assets in ETFs with near-zero costs, they could free up assets for active funds which considerably deviate from the benchmark, or funds that invest in illiquid markets,” the report said.Recently, Saker Nusseibeh, chief executive of Hermes Investment Management, also predicted declining margins at asset managers.During a Morningstar conference, he said that asset managers’ margins of between 35% and 45% were “untenably high”. Asset management costs are to drop by approximately 10% in the next three years, a survey by management consultancy Oliver Wyman and asset manager Morgan Stanley has suggested.In their report, The World Upside Down, the two firms attributed the decline to reduced fees as well as a shift towards exchange-traded funds (ETFs) and factor investment.“The decrease of fees is a trend – last year they dropped 6%,” said Serge Gwynne, partner at Oliver Wyman’s corporate and institutional banking practice.He added that the fall was insufficiently compensated by a rise in assets under management, which had lead to an income drop of roughly 5% at asset managers.